Belt and Road and the battle for global investment standards

A new battle is taking shape on the world scene. It does not contemplate the use of cannons, warships, bombs or any other weaponry. Neither does it provide for the physical occupation of enemy territories and positions. It actually sees China and the West compete in affirming their respective investment standards around the globe.

Beijing is considering the creation of “international” tribunals to manage trade and investment disputes arising from the Belt and Road Initiative (BRI), Chinese President Xi Jinping’s plan to boost connectivity throughout Eurasia and beyond.

The Asian giant’s Leading Group for Deepening Overall Reform, a political body chaired by Xi, recently approved guidelines about the establishment of BRI courts in Beijing, Xian and Shenzhen by the Supreme People’s Court of China.

It is said the three tribunals would be modeled after the International Commercial Court in Singapore and the Dubai International Finance Center Courts. But the Leading Group emphasized that they should be based on China’s existing mediation, arbitration and judicial institutions.

Controversies between foreign investors and host countries are currently regulated by bilateral and multilateral investment treaties. Existing agreements and practices stipulate that the arbitration/litigation venue in a cross-border investment dispute, as well as which laws to apply, must be chosen through negotiations between the concerned parties.

It is usually a third-party jurisdiction, namely a specialized investment tribunal that applies rules on arbitration set by the United Nations or the World Bank, that is called to decide on these kind of cases. This evidently goes against China’s plan to set up BRI courts at home and promote internationally recognized Chinese legal standards.

Views from Europe

The European Union, which has often voiced concern about Beijing’s practices in the implementation of its Silk Road projects, particularly when it comes to the protection of Chinese state-owned investors, could find it difficult to accept China’s BRI tribunals.

The EU is committed to the BRI through the European Investment Bank, and many EU member states participate in the BRI-related Asian Infrastructure Investment Bank.

Speaking to Asia Times, a senior European diplomat in Beijing said it came as no surprise that China, a rising political and economic power, wanted to have a say in drafting rules and procedures for the handling of international trade and investment controversies. He said European stakeholders would have to pay great attention to this process so as not to be caught off guard in the future.

Asked if the EU was ready to support China’s efforts to set up a BRI dispute-settlement mechanism adopting Chinese legal procedures and standards, an EU official told this writer that “for the time being we are still in the process of analyzing the decisions recently made public in Beijing regarding the resolution of disputes related to the BRI.”

The official added that “when looking at these initiatives, the EU will pay particular attention to their contribution to strengthening the rules-based global order, international institutions and standards, the rule of law as well as multilateralism.”

CETA standards

Aside from the European bloc’s carefully crafted wording, provisions contained in the EU-Canada Comprehensive Economic Trade Agreement (CETA) offer clues about Brussels’ possible response to Beijing’s promotion of its BRI courts.

The free-trade agreement between the EU grouping and Canada came into force provisionally last September. When CETA takes full effect, a new investment court system will replace the mechanism that currently regulates investment-related disputes between the two sides.

This will be a permanent tribunal appointed in advance by Brussels and Ottawa. Presided over by professional and independent judges, it will hold public hearings and publish documents relating to the single cases. What’s more, the EU and Canada will define “clearly specified grounds on which an investor can challenge a state.”

If the EU is consistent with the approach used toward Canada, BRI disputes involving European or Chinese investors will have to be handled along the lines of a negotiated scheme. The problem is that talks between Brussels and Beijing on a bilateral investment agreement are not making progress, most notably after the EU’s recent moves to protect its market from what it considers China’s unfair policies.

BRI courts vs EU-sponsored multilateral tribunal

China could have a hard time persuading countries along the new Silk Roads to agree to its dispute-settlement framework. Beijing will possibly get the nod for its BRI courts from developing countries heavily reliant on its loans and investments.

For its part, the EU will try to turn the CETA investment court into a multilateral tool. Japan, which finalized with the European bloc negotiations for a free-trade deal last December, could be the next country to join the new mechanism.

So the stage is set for a potential Sino-European battle for the global primacy of their own investment and commercial standards. It remains to be seen whether the standard-bearer of the Western world, the United States of President Donald Trump, will enter this contest or remain committed to building bilateral trade and investment relations while opposing multilateral dialogue.

Emanuele Scimia
Emanuele Scimia is a journalist and foreign policy analyst. He has written for Asia Times since 2011. His articles have also appeared in the South China Morning Post, the Jamestown Foundation’s Eurasia Daily Monitor, The National Interest, Deutsche Welle, World Politics Review and The Jerusalem Post, among others

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